The market stays under pressure following the news that Libya is set to increase its oil production and exports after an eight-month blockade
Oil prices came off recent lows and have settled above the $42 handle on Friday. Despite the selling pressure has eased, and the futures have steadied in recent trading, downsideк risks continue to persist, with market outlook deteriorating further.
First, crude oil prices have become extremely sensitive to general sentiment in the global financial markets where the downbeat tone prevails. Major stock markets finish the week with decent losses and could extend the decline in the coming week, especially as US presidential elections looming.
Second, virus cases continue to surge globally, suggesting a second wave of the pandemic has started already. The worrying numbers in turn fuel market concerns over the outlook for economic recovery amid mixed data coming out of major countries. Against this backdrop, oil demand recovery prospects look gloomy, adding to a cautious tone in the oil market.
Third, the dollar keeps rising nearly across the board due to its safe-haven demand amid negative risk sentiment. The USD index has settled around two-month highs and could stage a more robust ascent if the government comes to a consensus on the second fiscal stimulus package in the weeks to come.
Also, the market stays under pressure following the news that Libya is set to increase its oil production and exports after an eight-month blockade. There are also worries about demand from China as there are talks about the possible slowing down in growth and consumption in the world’s second-largest economy.
As such, the risk of a breakdown to $40 persist. For the time being, Brent needs to cling to the $42 handle in order to avoid another sell-off in the short term. as of writing, the futures were changing hands around $42.35, off intraday highs registered in the $42.80 region earlier in the day. In the immediate term, downside risks continue to persist as well.